Homeward Bound: The Inside Story of the AtHome-Excite Deal

The talks with AOL and Sony fell apart in mid-December. Bell won't confirm that he talked with Sony, but he does say he was worried that partnering with a major media company would turn into a bureaucratic nightmare, and that Excite would ultimately lose control of its business.

"I was hesitant to give up control of our business to a non-Internet major player," Bell says. "I've gotten too many resumes on my desk from Starwave and Infoseek (dossier) employees to do that," alluding to the complex deal that gave Disney a large stake in Infoseek.

With Sony and AOL out of the mix, Excite focused on deals with Microsoft, Yahoo and AtHome. Canceling his holiday vacation plans, Bell began serious talks with all three companies. The key issues: the future role of Excite's management and, of course, price.

During the first week in January, Microsoft dropped out of contention. For one thing, Bell had concerns about regulatory complications, given the ongoing Justice Department antitrust case against Microsoft. Bell says he also worried that Excite's identity would disappear inside MSN. A Microsoft spokesman refused to comment on the discussions, but said the company does have a stake in Comcast (CMCSK), which has a 12 percent stake in AtHome.

That left Yahoo and AtHome. Until that point, Bell says, the talks with Yahoo had gone well. Yahoo agreed to raise its offering price. Some Excite board members had dreamed of an Excite-Yahoo deal for years, and their goal finally seemed within reach.

But on Jan. 9, the dynamic changed. According to a source close to the talks, Yahoo changed its tactics as the two companies tried to finalize a price. "Their negotiating style went from being very open to one of gamesmanship," says the source. Yahoo's Mallett wouldn't comment.

Talks with Yahoo continued through the next week, right up to Bell's Thursday evening handshake with Jermoluk. But Bell says that the previous Saturday's session with Mallett, Koogle and Yang convinced him he couldn't complete a deal with Yahoo.

After that meeting with Yahoo, Bell met with Jermoluk. Jermoluk increased AtHome's bid. After four more exhausting days of talks with both Yahoo and AtHome, Bell and Jermoluk shook hands on a deal. Both parties insist the agreement is solid: "Once we did the deal, it was done, no collars, no walkaways, no nothing," Jermoluk maintains.

One important player in the deal wasn't actually at the negotiating table: AT&T CEO Michael Armstrong. But he was a looming presence.

"I talked with Mike Armstrong throughout the negotiations about overall strategy and how the deal fits with AT&T's plans," Jermoluk says. The plot thickened last Friday, when rumors emerged that AT&T might sell its WorldNet ISP to AtHome.

Monday morning, as execs from AtHome and Excite traveled to the airport for a flight to New York, where the deal was announced last Tuesday morning, Bell talked with Armstrong by phone. "George's call with Mike was a part of AT&T's basic due diligence, and to let him know Armstrong was committed to the value of Excite," Jermoluk says.

AT&T, once an Internet also-ran, suddenly becomes a real online powerhouse, with controlling positions in both the leading broadband ISP as well a top-tier Web portal. While AOL remains the clear leader in dial-up access, the deal makes the AT&T- AtHome tandem a rather formidable competitor.

Certainly, AtHome has the strongest position in cable modems, with 331,000 subscribers. Road Runner, a Time Warner (TWTC) venture, is a distant second, with about 160,000 Internet cable subscribers. AtHome says its service now passes 13.2 million cable subscribers, a figure that could grow to 23 million by the end of 1999.

While not an intuitively obvious combination, there's a cultural logic to the deal that's unusually powerful. Both firms were Kleiner start-ups launched at around the same time. They're situated next to each other in an industrial area in Redwood City, Calif., just west of U.S. 101. Their offices were designed by the same architect and look amazingly alike, right down to the slides between floors.

With almost no business overlap, they expect no layoffs. AtHome, in fact, has been planning a steady expansion - the company is constructing four new buildings adjacent to its current headquarters.

While some observers, including Yahoo (YHOO) President Jeff Mallett, have characterized the merger as a "Kleiner deal," both CEOs downplay the Kleiner Perkins connection.

It's certainly all in the family. As the deal was announced on Tuesday, Kleiner hired an airplane to fly a sign over the soon-to-be-combined campus that read, "Congratulations T.J. & George."